While so many good things have happened to emeralds in this decade, dealers in Colombia are in danger of giving it all away. It took years to regain confidence in emerald treatments following the famous case over disclosure of fillers. Now, after watching an historic rebound in prices and confidence, a new issue has come to be involving the treatment of rough with Permasafe. Apparently, emeralds unsuitable for cutting are now being treated right in the rough to keep stones from succumbing to the wheel. How will this impact the market?

Published July/August 2007

By Stuart M. Robertson, GG

The Colombian emerald industry continues to successfully navigate through a series of challenges that had stifled international demand. Colombia remains the principal producer of emerald in the global gem trade. It has held this distinction for centuries. The three main mining districts are Muzo, Chivor and Coscuez with Muzo stones prized above all others by the trade. All qualities are produced. Fine and extra fine quality stones are scarce especially in sizes over two carats.

In more recent years, emerald mining in Colombia has existed as a relationship between government and private enterprise. That relationship consists of the government renting the land to the mining companies and the miners taking responsibility for the region. Beyond that, the government has no involvement in the gemstone mining areas. As a result, the region’s development is dependent on allocation of revenue from mining companies to develop and improve the infrastructure. The younger generation of mine owners has recognized this, contributing to the construction of roads, a medical clinic and a school in the area. Younger, better educated individuals have become attracted to the emerald industry. As a result, the region is in transition from being controlled by “gangsters” to a safer, yet underdeveloped area.

The government has used the licensing of dynamite, critical to emerald mining, as a bargaining chip to force more support for cocoa eradication programs in the emerald region. Many of the old guard have resisted this pressure as nothing more than the government passing its law enforcement obligations onto the miners. In the end, the miners help to a certain extent and the government allows some dynamite into the region. The government has also increased the policing of the area. This is lending to the overall sense of heightened safety in the region—something welcomed by many of the locals inhabiting the area.

During the late 1990s through the early part of the current decade, the Colombian emerald industry experienced several obstacles that impeded their ability to bring product to the international gem trade. These issues were largely of their making. Allegations of drug money laundering that originated in prior decades continued to stigmatize Colombian emerald dealers even after most of these elements had been run out of the business. Yet, more than a decade after the fall of Colombia’s most notorious drug lord Pablo Escobar in the bloody shootout with police, the image of Colombia as a crime-ridden society still permeates the international scene. However, the reputation is outdated and largely unfounded today. Although violence against foreigners remains a concern, President Uribe’s government has dealt effectively with the criminal underground to make the country safer. Today, the bigger enemies of the emerald market have been the sporadic production and undisclosed treatments. During the 1990s, these two elements came to a head. The result was the cessation of sales activity in the market.

Emerald was one of the top selling gemstones in the international market during the mid to late 1980s through the early 1990s. Driven by demand, emerald prices hit record highs. Increased demand by the Japanese and European buyers helped trigger pricing volatility. With demand outpacing supply, prices remained volatile. However, during the early 1990s, indications were presented that suggested that production could not maintain the strong levels previously enjoyed. Pockets of rough were increasingly difficult to find at a time when efforts to curb anti-government rebel activities had already slowed commerce throughout the region.

In 1997, a lawsuit filed in the U.S. brought the issue of emerald enhancement to the attention of retail jewelers and consumers. This practice, benignly described for decades as “oiling,” now took on international implications. As market participants learned more about the use of synthetic resins in the clarity enhancing of emeralds, an increasing number of dealers expressed unease at the quality and value of the bulk of emeralds trading in the market. The perception that inexpensive commercial quality emeralds could be significantly improved with polymers such as Opticon™ to produce emeralds that appeared to be fine quality, left many dealers concerned about the value of their inventories. Further complicating matters was the fact that many of the fillers proved to be unstable, often changing color or opacity in the stone. The failure of dealers to inform the market of these treatments resulted in a significant erosion of value. The market was stagnant for half a decade as a result. No gemstone has received greater scrutiny as a result of treatments than emerald. As a result of the knowledge gained from this episode, today most producers enhance their emeralds with substances that can be removed from the stone should it “dry out” or if the client requests it. Branding efforts such as that of Arthur Groom’s Eternity Emerald™, which are treated in a proprietary process and warrantied for life, have also helped to restore consumer confidence.

Today, enhancements are largely separated into two groups: cedarwood oil and polymers. Cedarwood oil is often marketed as being a “natural” filler, as if that makes it a better choice. These substances, whether cedarwood oil or polymers, contain synthetic components. More important, neither occurs naturally in the emerald. Any inference to the contrary is misleading. If one is going to accept the notion of oiling, then stability of filler should be the primary concern when choosing an enhancement medium.

Storm Clouds on the Horizon
Traditionally, Colombian emerald rough is washed during the sorting process, but never treated until after faceting. “Oiling” of rough was not tolerated. It was reportedly considered fraud and the consequences were severe. However, reports have recently surfaced that rough and preforms are being treated with Permasafe. Gary Roskin, who described the practice for JCK, reports that the process is done to glue the stone together before final cutting, allowing the cutter to save weight by not having portions of the crystal break off during the final polish. Emerald dealer Arthur Groom tells the GMN, “Treating rough is a huge problem. This is more catastrophic than any issue from the Ward case.” [The Ward case involved an issue of undisclosed emerald treatments. Publicity from the Ward Case contributed to a major backlash against emeralds at all levels of the market. Value loss equaled nearly 70% in some quality grades.]

Just as the market has repaired its reputation and is showing sustainable, improved demand, dealers are risking it all with practices like this. Groom explains that, “Permasafe is literally used to make the rough stronger so that more of it is retained during the cutting process.” The reason given by producers that disclosed the process to Groom, is that if not for the enhancement, the rough would not survive the wheel. But isn’t that reason enough not to do it! According to Groom, “As a result of treating rough this way, pure garbage is entering the market under the guise of emerald.” The process is not limited to commercial quality material. The process is showing up in substantial stones. The newly restored confidence in the Colombian emerald market may be short-lived if this practice continues outside of the commercial grade stones.

Groom stresses that the Colombian producers are disclosing the treatment. “In Colombia, everyone is open about this practice. This is not a case of the Colombians failing to disclose a treatment. They are very clear about what is happening. They are responding to demand from the market.” The problem as Groom sees it is that the next level of the distribution chain has dropped the ball. Groom states that he recently refused to clean out and re-enhance a parcel of emeralds because the experts in his lab were convinced that the stones were being held together by the filler.

Quality Range of Emeralds Trading in the Market
While no universal grading scale exists for emerald, the GemGuide uses four grading categories: commercial, good, fine and extra fine. All four grades are sold. Prices assume a moderate level of enhancement. Emeralds with a slight degree of enhancement will draw a premium especially in the fine and extra fine grades. Unenhanced stones in the fine and extra fine quality grades will draw a premium that can be 50% to 100% or more of the GemGuide price. Emeralds with an extensive degree of enhancement will be discounted. Significant premiums are no longer associated directly with the type of filler used. However, market participants may have individual preferences concerning the type of fillers they will accept.

The commercial and good qualities are most commonly sold in the trade. Commercial and good quality can be found in mass merchandise and television shopping venues. Fine to extra fine tend to be encountered in medium to upscale jewelry stores. Top stones especially of important size are typically sold at auction. Demand is strongest for Colombian stones of 2 to 3 carats in the upper good to fine quality. Fine to extra fine quality stones weighing more than 1 carat may require a lab certificate to realize their market potential.

Price Trend Analysis
Prices for emerald have been on the rise since the early part of this decade. In addition to political and treatment issues described above, one other significant factor contributed to the level of affordability observed in the emerald market during 1999 and 2000. Prices declined during this period as a result of the discovery of a large deposit of commercially viable, mostly low to medium quality material from the La Pita mine. Fine and extra fine material was also produced. Early production at the La Pita area was robust. The best crystals were both large and nicely saturated. Production at this source continues today. Production was quite strong for six straight years. Other deposits associated with this area have been recently discovered and worked. But La Pita has been the most productive of these new mines.

Although demand remains below that of the peak years, it has shown steady improvement during the past two years. In November of 2006, several pockets of fine, slightly bluish green emerald reminiscent of the finest Chivor emeralds were simultaneously discovered at different sites in the Penas Blancas, Coscuez and La Pita areas. This created a wonderful supply of beautifully saturated Colombia emerald to enter the market. During the Tucson GemFair, held earlier this year, I examined several specimens owned by dealer Ron Ringsrud that were attractively priced. Today, prices for emerald remain below the historical high observed during the peak years. However, the emerald market has been experiencing an upward movement during the past four years. In the 2 to 3 carat range, $2,500 to $3,000 per carat will purchase a nicely saturated stone. The classic Muzo color is more commonly associated with a $4,000-6,000 per carat price for stones of this size. Extra fine Muzo stones are scarce and will exceed these price points.

Several events contribute to this steady increase. Emerald is increasingly popular in the international market. The stone has a glorious history in the Americas that goes back many centuries. Emerald green represents a range of colors that fit nicely into the color scheme of many top fashion designers. It is also appropriate to note that during the past two years, the Colombian peso has gained significantly against the U.S. dollar. In fact, Colombia is in the midst of strong economic growth. In 2006, Colombia’s economy grew 6.8%, representing its best growth in 29 years. Foreign investment in Colombia has also grown by leaps and bounds during the past few years. Unemployment is way down and the business climate has improved. Currently, the U.S. dollar is at a six-year low compared with the Colombian peso. The Colombian peso has gained more than 20% against the dollar in the past two years. This has been a bit of a handicap to exporters of emeralds, miners, coffee growers, and floral growers, who are facing stiff foreign competition. So, in spite of the healthy production in the emerald region, prices are expected to continue to climb.

In spite of the treatment issues involving rough that must be addressed to protect the recent rebirth of integrity in this market, the emerald industry is poised to see strong growth in the near term. The strength of the Colombian economy and efforts to secure the business district in Bogota are helping to foster growth in emerald market.

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